Everybody Take A Deep Breath — Countrywide Isn’t Chrysler
Posted @ 9:46 pm - Filed under Check This Out, Financing
When something like the Countrywide to-do goes down, it creates a pretty large blip on the national radar screen.
Fair enough. But seriously people, let’s not get ourselves in too much of a tizzy here. Countrywide’s likely fall will not be discounted by me, but it’s simply not the harbinger of any perfect storm. Some, I think with tongue in cheek, have likened it to the Chrysler problem of long ago. That resulted in loan guarantees from the feds for bailout loans. This isn’t that big a deal. But then that’s only an opinion, isn’t it?
I’ve now had several conversations with people for whom I have enormous respect, but are in many cases able to see inside what actually is more than likely happening.
This morning Countrywide used their version of a homeowner’s HELOC — their line of credit. It just happened to be underwritten by about 40 banks, and for billions of dollars. ($11.5Bil) Remember this for later.
Bank of America has been trying to acquire Countrywide for quite awhile, but didn’t think they were worth the asking price. Do you think for a second a bank as experienced and just plain ginormous as B of A would be interested in an absolute loser? My money’s on NO, they wouldn’t.
There are enough lenders out there to take up the slack left by the potential failure of Countrywide. You could use the analogy, though a tad messy, of sponging up the blood from a serious, but non-fatal knife wound. It hurts like crazy, it’s not pretty to look at, and it puts you on the sidelines for awhile. The doctors and nurses in the emergency room quickly size up the situation. They see what must be done to minimize immediate threats, and also potential long term problems.
The patient, in this case the lending industry as a whole, walks out either the same day, or at most a week later with a bunch of stitches, a nasty scar developing, and prescriptions for the pain and possible infection. He’s probably at work in a matter of days, maybe a week.
Let me pause here to say it’s not my intention to imply or have you infer that this will all be fine and dandy in a few days or a week. It won’t. But it’s my guess that in the next 1-3 months or so, it will be handled. Countrywide will either be gone or a much smaller firm. They will, in my opinion, have new owners.
OK now, I asked you to remember what I mentioned about Countrywide drawing down on their line of credit. Who do you think is probably the lead lender, or at least one of the major lenders for that line of credit?
Drum roll here………………Right………Bank of America. When I heard that this morning, the light went on. Duh
Countrywide might, because of the ego of its leadership, at least rattle their swords about bankruptcy. This is where I think Bernanke, Fed Chairman, will quietly intervene and talk sense to Countrywide.
Bank of America will have acquired their target, everyone will see it’s a long trusted, and prudent bank, and the mainstream media will have to chase other ambulances.
This is just my guess at what could happen. That and my Starbuck’s card gets me a cup of coffee and an oatmeal raison cookie this afternoon. But it sure makes sense to me. The next 30-100 days will most likely tell.
The key, in this tale would be Bernanke whispering in Countrywide’s Chairman and Founder, Angelo Mozilo’s ear. 
There’s something about the Fed Chairman talking sense to you while you realize the power he wields. Mr. Mozilo will be hard pressed to eschew the bluff strategy of threatening bankruptcy. He would appear to be much better off taking his money and riding off into the sunset. His legacy will be mostly one of great success. He will have made what’s known as generational money. His great-great grandkids will be wealthy upon their birth.
When this is all over, and it turns out it wasn’t Chrysler? Remember it was the media — once again, who did their best to scare the crud out of us. They care not what fear they generate by their drive to sell newspapers, and radio & TV time.
I won’t list all the folks with whom I talked this morning. But I can’t take more than 20% of the credit (pardon the pun) for what I’ve put forth as a plausible scenario. Brian Brady, the most knowledgeable mortgage broker I’ve ever personally known, broke this down for me. Combined with the others’ takes, Brian’s made the most sense by orders of magnitude. The edge he has on some in his business is the six years he spent on Wall Street himself. He understands the inner workings.
By the way, Brian doesn’t believe any more than I do, (in my opinion) that there will be a federal bailout of Countrywide the way the feds stepped in for Chrysler. Given the above scenario, and the pieces of that particular puzzle that seem to be falling into place — a bailout would be like killing a spider with a sledgehammer.
This entry was posted on Thursday, August 16th, 2007 at 9:46 pm and is filed under Check This Out, Financing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
